Rob Katz

Cashless Transactions at the BOP: Peppercoin

What do your local Chinese restaurant’s delivery service and MIT’s advanced cryptography department have in common? The answer: Peppercoin, an innovative payment platform allowing consumers to use credit or debit cards for small transactions — thus eliminating merchants? need for those annoying $10 minimums on credit card purchases (e.g. last night’s sesame chicken, when I had to order egg rolls to get over the $10 hump).

Peppercoin has been around since 2001, the result of two MIT professors? efforts to commercialize their revolutionary payment protocols (Verisign and Zero Knowledge Proofs). As it stands, high processing and customer service costs discourage merchants – both online and physical – from accepting issuers? credit and debit cards for small purchases. Peppercoin aggregates small transactions to increase efficiency and lower merchants’ cost. Furthermore, the service lies wholly on the merchant side, making it invisible to consumers–so I can buy my sesame chicken with a credit card, no up-sell egg rolls necessary.

The company’s web site is full of technical explanations, but for me, it’s this simple: a consumer can pay for a parking meter, purchase a digital news article for $0.50, or buy a pack of gum from the corner store for $0.75–without needing to use cash. When I read that sentence, the BOP light bulb started flashing in my head. We’ve talked about the advantages of cashless transactions in the developing world, whether it means integrating small merchants into the formal economy or making bank services available to low-income consumers. Peppercoin’s infrastructure seeks to standardize this process on the merchant side, demonstrating to consumers that their new credit or debit cards are worthwhile investments. What’s more, they allow small and micro transactions into the system – pay-per-use, pre-paid, subscription, post-paid – under the assumption that increased volume of low-cost transactions will aggregate into profit. That sentence could just as easily have come from CK Prahalad or Stuart Hart.

Since Peppercoin is the brainchild of MIT professors, whose Cambridge digs are as well-connected as any in the world, I was initially worried that the system requires first-world connectivity. According to Bob Nix, the company’s CIO and VP of Engineering, however, the Techies are already a step ahead of me:

Peppercoin’s systems are designed to be deployed as part of the banking and payment processing infrastructure, providing a small and micro payment processing solution that is highly compatible with existing payment products (such as credit and debit cards). The payment systems of developing countries can be engineered to securely authorize and capture payments in a fashion that does not require real-time connectivity, but rather works with intermittent, asynchronous communication between the merchant and their bank’s processing environment.

Bingo. Combine Peppercoin technology with another MIT development, First Mile Solutions, and you might have an integrated BOP delivery mechanism for cashless small payments. You’d be able to capture the relevant account information every time a FMS motorman went by, along with voicemails, e-mails and asynchronous web page browsing, which might let villagers take advantage of online shopping, or allow family members living in the city remit money back home through the corner store. I wonder if the cryptographers have ever sat down with the folks at the Media Lab?

Perhaps you?re saying that Peppercoin is just another technology-first, application-second start up. Maybe. But MasterCard doesn?t seem to think to: they recently struck up a partnership with Peppercoin. Their spokesman hopes the arrangement helps remove questions in the payment industry over the future of cashless payments for inexpensive items. He may not know it, but that future is bright at the base of the economic pyramid. And if what’s bright at the BOP means I can use my MasterCard for late-night sesame chicken, all the better.

(Thanks to Dad – MIT Class of 1975 – for sending this along)